Ch 12 - Ch 12. Capital Market History 1) Return Measures In...

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Ch 12. Capital Market History
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1) Return Measures In this chapter, we want to understand the relationship between returns and risks. 1) How to measure returns? (1) Total dollar return = dividend income + capital gain (or loss) (2) Percentage return (R i ) = D t+1 /P t + (P t+1 – P t )/P t = dividend yield + capital gains
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Ex) The stock price at the beginning of the year was $35 per share. At the end of the year, price was $40.33. The dividend paid during the year on each share was $1.85. Total dollar return = 1.85 + (40.33-35) Percentage return = 1.85/35+ (40.33- 35)/35
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Average returns during 1926 and 2005 Large-company stocks: 12.3% (8.5%) Small-company stocks: 17.4% (13.6%) Long-term corporate bonds: 6.2% (2.4%) Long-term government bonds: 5.8% (2.0%) US Treasury bills: 3.8% (0.0%) Here risk premium = average return – risk free rate return (US Treasury Bill). It is in parentheses. = -
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Ch 12 - Ch 12. Capital Market History 1) Return Measures In...

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